SIP - Systematic Investment Plan

SIP Investments

Systematic Investment Plan (SIP) is a mode of investment into mutual funds that involves investing a small amount of money at regular intervals into a scheme instead of a lump sum. The interval can be monthly, quarterly, or weekly. SIP investment is one of the most convenient ways to accumulate long-term wealth. A small amount of money invested in a disciplined manner in the right assets goes a long way in building a corpus that can be instrumental in fulfilling all your financial goals.

When you commit towards online SIP investment, a certain amount of money is debited from your bank account or you may do it via a cheque payment. When the payment for the SIP investment is made, you are allotted units of the mutual fund based on the Net Asset Value (NAV). Before investing in mutual funds, it is best to assess the performance and the track record of the fund over a medium to long period of time. Disciplined investment is definitely important but it is equally important to choose the right funds.

The main essence of the SIP investment is flexibility and affordability. As an investor, you are free to choose the amount you want to systematically invest and even the intervals at which you will be investing. You are mentally prepared to shell out a pre-determined sum and you are aware of the exact dates for auto-debit as well. This way, the SIP also helps you to plan your finances well and arrange other commitments in a manner that is most convenient for you. Moreover, the online SIP investment mode enables you to start an account right from the convenience of your home.

A Systematic Investment Plan (SIP) is best suited for first-time investors or anyone who has little knowledge of the market situations. You do not need to study the market movements and choose the stocks yourself; neither do you have to be wary of the amount that can be safely invested. All you need to do is the commit a pre-decided amount, start an online SIP investment and the rest is taken care by us.

The salient features of SIP include:

  • SIP is the simplest method to invest in mutual funds.
  • You can open SIP account, choose any SIP investment amount, and send a mandate for auto-debit from your account. You can also increase or decrease the amount of SIP by cancelling the existing scheme and opting for a new mandate. The fund house does not charge any penalty for revising the SIP amount.
  • You have the flexibility of choosing the intervals such as weekly, monthly, quarterly, or annually.
  • There is no limit to the tenure of SIP investment. You can continue for as long as you want. When you want to stop the investment, you can give standing instructions to close the SIP.

How to invest in SIP

In an open-ended mutual fund scheme, you can start SIP online at any point of time, you just need to fill up an application, sign a mandate for auto-debit, and submit it to the concerned AMC, broker, or distributor.

The online SIP investment can be done by directly visiting the website of the mutual fund or through the portal of the distributor.

How does SIP Work?

The two primary principles, which make an SIP work, are 'Rupee Cost Averaging' and 'The Power of Compounding.'

• Rupee Cost Averaging

The philosophy of ‘Rupee Cost Averaging’ explains that if you buy more units at lower NAVs and less of them when their values go higher, your average cost of investment goes down and this enables you to earn more returns on your invested amount. By making a fixed investment each month you average out the highs and lows in the cost of investment.

Mentioned below is an example to illustrate how ‘Rupee Cost Averaging’ works in an SIP:

Rohini invests INR 1,000 as a monthly amount in an SIP scheme of an equity mutual fund. Let us assume that the market is volatile for a certain period. In that case, her investments will appear in the following manner:

No. of SIPs Month NAV No. of Units (Amt./NAV)
1 January 100 10
2 February 99 10.10
3 March 110 9.09
4 April 98 10.20
5 May 90 11.11
6 June 100 10
  Total 597 60.50

With 60.50 accumulated units, the average cost of investment per unit comes to INR 99.50 instead of INR 100. If Rohini would not have opted for the SIP mode and made a lump sum payment, then she would have only accumulated 60 units instead of 60.50 in this case.

Looking at the value of investments, if Rohini would have opted for the lump sum method, her investment value as per the NAV of INR 100 would have been INR 6,000, which is 60 units multiplied by the latest NAV or the NAV of June. However, by the SIP method, the value of the total investment is INR 6,050 (60.50 * NAV of June), which is more than the value of lump sum investment.

Hence, with the ‘Rupee Cost Averaging,’ there is no need for you to time the market. You can enter at any point and continue consistent investments in a disciplined manner. This is the best recipe to earn maximum earnings in a market. In fact, the real impact of the ‘Rupee Cost Averaging’ can be realized only in the long-term. Say, after six-seven cycles of the SIP purchase by Rohini, the cost of investment is smoothened out and the average cost of unit brings her to an advantageous position.

• The Power of Compounding

‘Compound Interest’ is one of the most basic concepts in mathematics that we learned in our school days. The power of money to earn more interest when reinvested is the single most powerful factor that can increase the value of your portfolio beyond imagination. If you continue to invest in a disciplined manner, there will be a situation when the reinvested money will become greater than the original principal amount. The secret sauce to enjoy the power of compounding is to begin early and be persistent.

Let us take a simple example and understand what compounding is. Let us say you have an amount of INR 100 and invest it in a bank at the rate of 6% interest. After the completion of the first year, you get INR 106, which means INR 100 is the principal amount and INR 6 is the interest amount. Now, if you plan well and reinvest the sum of INR 106 at 6% again, you will receive INR 112.36. The interest amount here is INR 6.36, which is more than the interest amount of INR 6. This is what compounding does to your money.

Given below is an example, which shows that compounding has the power to enhance the value of your portfolio when reinvested. Let us assume two scenarios, one in which the principal of INR 1 lakh is not re-invested and only simple interest is earned at the rate of 10%, and the other in which the principal amount of INR 1 lakh is reinvested at the rate of 10%.

Year Principal amount (INR) Interest @ 10%
1 100000 10000
2 100000 10000
3 100000 10000
4 100000 10000
5 100000 10000
6 100000 10000
7 100000 10000
8 100000 10000
9 100000 10000
10 100000 10000

Year Principal Amount Interest @ 10% Amount
1 100000 10000 110000
2 110000 11000 121000
3 121000 12100 133100
4 133100 13310 146410
5 146410 14641 161051
6 161051 16105 177156
7 177156 17716 194872
8 194872 19487 214359
9 214359 21436 235795
10 235795 23579 259374

In scenario one, the total interest earned in 10 years is INR 1 lakh.

The amount after 10 years is INR 1,00,000 + INR 1,00,000 = INR 2,00,000

In scenario two, the total interest earned in 10 years is INR 1,59,374

The amount after 10 years is thus INR 2,59,374, which is approximately 30% more than the amount earned with the ‘Power of Compounding’ principle.

There are numerous benefits of an SIP investment. Right from being hassle-free, convenient, flexible, and affordable, SIP has all the advantages you need in an investment avenue for new investors.

• Regular investing

Firstly, you need to identify your financial goals such as purchasing a house, buying the first car, marriage, and education. Keep aside a predetermined sum and invest it regularly towards the financial goals. Due to the compulsion of maintaining an SIP, the investor inculcates a habit of regular savings in oneself. This is one of the pre-requisites for regular investing and long-term asset building.

• Maintain discipline in your asset allocation

In a normal investment pattern, you may be lured by the performance of various assets and be tempted to switch across assets. This, in turn, could be detrimental to your portfolio. SIP allows you to maintain discipline in the asset allocation or switch abruptly between assets because choosing the assets is not in your hands. You may have put money in debt for protecting your capital and earning limited returns, but after seeing the performance of the Exchange Traded Funds (ETFs), you wish to shift your investment there. Shifting your asset allocation could be harmful to your portfolio if done impulsively. In SIP, you do not have a scope to do this. Expert fund managers take a call about reshuffling and rebalancing the portfolio if need be.

• Rupee Cost Averaging

As you invest a fixed amount of money every month into the market, you buy more at a lesser cost and lesser units at lower costs. This evens out your cost of investment and enables you to earn increased potential returns. This is called 'Rupee Cost Averaging.' Investing at the right time is important but it is not for everyone to engage in market timing. This is best left to expert fund managers. SIPs through the magic of 'Rupee Cost Averaging' bring in the highest return for the regular investor over a long period of time.

• Power of Compounding

Saving small amounts at regular intervals is much better than saving a lump sum amount at once. Though the lump sum may offer you a big return, it misses out on the 'Power of Compounding.' SIP allows you to enjoy the benefits of compounding over a long period. Because of the compounding aspect, not only your invested capital grows but you also earn interest on the interest amount. The compound interest factor helps you to earn superlative returns on your SIP over a long period of time.

• Best suited for long-term goals

SIP is best suited for long-term goals. A small amount of investment done at regular intervals has the potential to grow into a huge corpus of funds. Prolonged exposure to the equity markets is sure to give you returns that are handsome enough to meet your various financial goals and beat the inflation. For short-term gains, SIP is not the ideal route, but if your investment horizon is spread over a longer period, SIP has the potential to deliver high returns.

• Limited risk exposure

The very reason why you chose to opt for the SIP route is because you did not want to spend too much time thinking about which asset to invest in. You probably also have limited knowledge of the stock markets and picking a wrong asset would be a risky bet. In situations like these, an SIP is the best solution, as it allows to earn super-normal returns without getting exposed to risks and factors beyond your control.

Indiabulls AMC is one of the leading AMCs in India. It has a plethora of mutual funds to offer from the debt and equity category. Here is a snapshot of mutual funds SIP plans by Indiabulls. All the below-mentioned plans can be of any date between the 1st and 28th of the month.

Debt funds

Name Type Investment Philosophy Frequency Riskometer
Indiabulls Liquid Fund Liquid Fund High liquidity and low risk achieved through investment in money market and debt security with maturity up to 91 days Monthly (Any date SIP)*-Quarterly Low risk
Indiabulls Short-Term fund Short Duration Fund High liquidity and low risk achieved through investment in money market and debt security with maturity one-three years Monthly (Any date SIP)*--Quarterly Moderate risk
Indiabulls Ultra Short Term Fund Ultra Short Duration Fund High liquidity and low risk achieved through investment in money market and debt security with maturity three-six months Monthly (Any date SIP)*--Quarterly Moderately low risk
Indiabulls Savings Income Fund Conservative Hybrid Fund Generates monthly returns through debt and provides capital appreciation through part investment in equities. Monthly (Any date SIP)*--Quarterly Moderate risk
Indiabulls Income Fund Medium Duration Fund High liquidity and low risk achieved through investment in money market and debt security with maturity three-four years Monthly (Any date SIP)*--Quarterly Low risk
Indiabulls Savings Fund Money Market Fund High liquidity and low-risk investments in money market securities. Monthly (Any date SIP)*--Quarterly Low risk
Indiabulls Dynamic Bond Fund Dynamic Bond Fund Aims at investing in debt instruments including but not limited to bonds, debentures, government securities, and Money Market Instruments over various maturity periods. Monthly (Any date SIP)*--Quarterly Moderate risk

*Any date from 01st to 28th of the month.

Equity funds

Name Type Investment Philosophy Frequency Riskometer
Indiabulls Blue Chip Fund Large Cap Fund Intends to provide maximum capital appreciation by investing in equity instruments of large cap companies Monthly (Any date SIP)*--Quarterly Moderately high risk
Indiabulls Value Discovery Fund Value Fund Aims at providing capital appreciation by investing in equity and equity- related instruments of a certain value criteria and that falls within top 500 of market capitalization Monthly (Any date SIP)*--Quarterly Moderately high risk
Indiabulls Arbitrage Fund Arbitrage Fund Aims at investing in arbitrage opportunities of the cash and derivatives segment Monthly (Any date SIP)*--Quarterly Moderately low risk
Indiabulls Tax Savings Fund ELSS Aims to generate long-term capital appreciation and tax benefits under Section 80 C of the Income Tax Act Monthly (Any date SIP)*--Quarterly Moderately high risk
Indiabulls Equity Hybrid Fund Aggressive Hybrid Fund Aims to generate periodic return and long-term capital appreciation from a judicious mix of equity and debt instruments Monthly (Any date SIP)*--Quarterly Moderately high risk

*Any date from 01st to 28th of the month.

Open SIP account with Indiabulls and reap the benefits of better returns with the best fund managers and the convenient SIP investment procedure. You can straightaway start SIP online and Indiabulls will guide you as to how to invest in SIP and maintain your investments.

There are four main types of SIP Plans. These include the following.

• Top-up SIP

This kind of SIP plan allows you to increase your investment amount at certain periods. If you see that a particular mutual fund is performing well, you can increase your SIP allotment to it to reap more returns. Another situation, wherein you would want to top-up the SIP amount, is when you have more funds at your disposal. You can choose to increase the investment amount whenever you have more income.

• Flexible SIP

Just like a top-up SIP, this SIP plan enables you to increase as well as decrease your investment amount in situations such as a financial crisis or cash crunch. Similarly, if you have sudden funds at your disposal or excess cash due to some reason, you can also choose to increase your SIP amount.

• Perpetual SIP

Usually, SIP investments are for fixed term periods such as one year, three years, or five years. However, in case of perpetual SIPs, you can choose to not mention an end date in your mandate. You can redeem these funds whenever you require the funds in case your financial goal has been fulfilled. However, if you want to have a more disciplined approach, it is recommended that you put an end date to your mandate.

• Trigger SIP

This is a unique type of SIP, which is more suitable for first-time investors or those who do not have much knowledge of the financial markets. You can fix an NAV, SIP start and end date, the ‘Index level,’ and event. However, this kind of SIP leaves a lot of scope for speculation. Therefore, it is not advisable to invest in this kind of SIPs.

1. What is SIP?

A Systematic Investment Plan (SIP) is an investment avenue that allows investors to invest money in mutual funds through regular investments at fixed intervals. The amount can be as low as INR 500 and the investor decides the frequency.

2. Why should I invest in a SIP?

There are various benefits of investing in an SIP. It inculcates a disciplined approach to your savings and allows you to build a substantial amount of wealth in a slow and steady manner. You do not have to worry about picking the right assets, as this is the responsibility of the fund manager. All you need to do is to be consistent in your investing pattern. Through principles such as ‘Rupee Cost Averaging’ and ’The Power of Compounding,’ the SIP is poised to deliver high potential returns in the long-run.

3. What are the eligibility criteria for the SIP?

Anyone above the age of 18 whether an Indian or an NRI can invest in mutual funds through the SIP route. However, you need to have all the necessary identity proofs in place and a bank account with net banking facility activated. You can also pay the SIP amount through post-dated checks.

4. What is the frequency of SIP investment?

The frequency of the SIP investment totally depends on you. It can be weekly, monthly, quarterly, or annually. You need to decide a frequency based on your comfort level and be consistent in investing the amount.

5. How much should I invest and what should be my tenure?

You can start an online SIP investment with an amount as low as INR 500. The tenure of your investments needs to be based on your financial goals. You can use tools like the online SIP calculator, which will help you to understand the quantum of accumulated wealth under varying investment amounts, tenure, and frequency of investment. Once you get an idea, it will be easier for you to make a decision about the tenure of investment.

6. Can SIP returns be negative?

SIP returns can be negative in the short-term. The returns on SIP depend upon the NAV of the fund, which can fluctuate based on the market conditions. However, if you continue to invest over a longer period, the SIP returns are smoothened out.You do get positive returns due to ‘Rupee Cost Averaging’ and ’The Power of Compounding.’

7. What is the procedure to modify or cancel my SIP?

You can modify or cancel your SIP mandate by sending a modification/ cancellation request 30 days before the next SIP due date. Your request for modification or cancellation must be backed by a duly filled application with the revised terms of the SIP investment and a written and duly signed request for discontinuing the existing SIP.

8. What can happen if my bank did not have adequate balance at the SIP due date?

If there is insufficient balance in the account and the SIP fails for four consecutive instances, your SIP will be cancelled automatically.

9. Is KYC compliance important for SIP?

Yes, Know Your Customer (KYC) is very important and must be ensured before starting any SIP investment. Your address proof and valid identity proofs must be submitted along with the SIP application in case the KYC procedure has not been done before.

10. Is there any exit load if I want to redeem my SIP investments?

If you want to redeem your mutual fund investment, the exit load, which was applicable at the date of starting the SIP will be considered. For more details on the load structure of each fund, you need to refer to the ‘Scheme Information Document’ or the ‘Key Information Memorandum’ of the particular fund.